Why Bother? Well, Because We Have To

USPTO is in the process of giving its website a facelift.  Modern fonts, the bootstrap framework, and lots of code in github.  We commend the new look.  The upgrade has not been without its own twists and turns.  We found tons of "differences" on the filed dates on the assignee pages vs. the full text database including dates like Jan 1, 0001 and our favorite patent number 12345678.

(It's usually a good idea to have data traps to catch bad data and to remove the test data before going live but we've had our own forgetting to remove the test deck fro the system when going live transgressions so we get it.)

There has also been more explaining of the goings-on in the patentsphere, giving the public some context about what it is that they are looking at.  Providing the public with more information on what the patent data means


One of the more interesting ones had to do with data on the assignee pages.  Our correspondent from Nebraska brought it to our attention being obsessed with all matters pertaining to who owns what.

"When relevant information is given to the USPTO to be recorded in the USPTO’s assignment database, the USPTO simply puts the information on the public record and does not verify the validity of the information. Recordation is a ministerial function--the USPTO neither makes a determination of the legality of the transaction nor the right of the submitting party to take the action."

You can see it for yourself here.  Right at the start screen of assignment search.

There are so many head exploding things going on here that it's hard to figure out where to start.

caveat emptor

USPTO is basically telling you the assignment data questionable and only as reliable as the reputation of the company providing it.  If you think Apple and IBM are reliable you might be happy with thinking their data is ok.  If you don't know who See Shell LLC is you might be suspicious.  

USPTO charges people fees and just put the information in their database and you people are on your own.  Which is worse - that USPTO can't rely on the information provided it by patent owners or that the impossible task of trying to figure out who owns what patent without spending a lot of time and money continues because the data from USPTO is "simply put on the public record and not verified."  

Then there is the odd phrase, "Recordation is a ministerial function..."  Or as our disgruntled Nebraska correspondent, data scientist and public records expert from Nebraska put it, 

"Can you imagine seeing a similar statement on the door of your local County clerk's office? The rotting respect for public records and government custodial integrity erodes..."

Get the pitchforks out.

this is a stick-up

USPTO is in the middle of the Attributable Ownership battle of the new century.  You can read all the gory details here.

The White House and just about anyone who believes that the exclusive right conveyed by a patent is based on disclosure of the invention including who owns it got tired of not being able to figure out who owned what patent.  A chorus of voices from the real world -- retailers, hoteliers, people who run businesses small and large, who got hit up by the patent monetization entities in extortion racket -- also have had it with how impossible it is to find out who is behind See Shell, LLC or other exotically named firms claiming infringement of their patents and demanding money, are also demanding better, easy to access, information.  So an executive order was drafted and signed that basically says you have to provide accurate and comprehensive information on the ownership and the real party in interest for a valid patent. Real party in interest basically says tell us EVERYBODY who stands to benefit from See Shell, LLC's ownership of the patent. 

USPTO's rule making requires that owners report ownership information every now and then --  when you get your patent, when you pay your maintenance fees or if something "material" in the ownership of the owner happens.  The Innovation Act making its way around the Capitol is much more stringent looking for updates within 90 days of something happening.

why bother?

Which brings us to the big question here, why bother?  Well, because they have to.  USPTO records and publishes what it gets because there is no meaningful or realistic way for them to put the hammer down and tell people to send in correct information with your fees or we'll invalidate your patent.  It's like all the other bad data they get from applicants.  

Patents are assets like deeds to your house or the title on your car, or those stock certificates stored somewhere.  It's time that patents are given the same level of scrutiny and respect as other types of property so that you don't have to wonder if the disclaimer on the new upgraded USPTO assignee page wouldn't make the fine people at the County Clerk's Office cringe.

Google's Latest Search Questions

As anyone working in the world of patents knows, the vast majority of transactions are shrouded in secrecy.  Transactions generally start with non-disclosure agreements and end with agreements with non-disclosure clauses.  From the real person of interest (lawyer speak for the person who really owns the patent) to the address of the owner, to the terms of a license agreement everything happens behind closed doors.

Enter Google, a firm that no doubt has signed its share of non-disclosure agreements while navigating the patentsphere.  The firm makes no secret of its outrage over the activities of patent assertion entities (PAEs).  In their latest comments on patent trolling and privateer business models sent to the Federal Trade Commission (FTC) it asks the FTC to investigate how these nefarious privateer business models operate.  Patent privateering is where a company that makes things - an operating company - teams up with a non-practicing entity (or creates an entity for that purpose) and then go after infringers rather than file infringement lawsuits themselves.  Here are the questions buried in the Google FTC comments:

• How prevalent is the outsourcing of patent enforcement by operating companies to PAEs?
• What types of arrangement have PAEs and operating companies consummated?
• What motivates these arrangements?
• What are the likely competitive harms and benefits of patent outsourcing?
• What are the competitive implications of the secrecy with which many PAEs conduct their operations?
• Do the particular terms of outsourcing arrangements indicate that operating companies are employing PAE proxies as competitive weapons?

Most of the questions can be answered with, wait for it, a Google Search.  

Some of the answers to the questions are obvious: What motivates these arrangements? Making money.  Having non-correlated assets turned into cash without having them impact the bottom line.

And some seem kind of disingenuous for a firm that dominates its market space and it behavior as it moves into new markets questions as monopolistic - Do the particular terms of outsourcing arrangements indicate that operating companies are employing PAE proxies as competitive weapons?

And while Washington is awash in sequestration commentary and vitriol on the effectiveness of government employees, it seems a little simple minded that Google and its commenting buddies (Red Hat, Earthlink, and Blackberry) to put forth such simplistic questions before an organization that put on one of the most sophisticated and informed discussion on the subject matter as part of it's December 10th 2012 Patent Assertion Entity Workshop with the Justice Department.  Did Google send anyone?  Its was a veritable who's who of the Patent Bar (and a fashion parade for litigation wear and red ties.)  Blackberry doesn't discuss its purchase of the patents held by the Multimedia Patent Trust or it's pre-Google purchase of the mobile assets of Motorola, of the peace treaty between BBBY and MOTO.  Red Hat and Microsoft engaged in its own not dance on Linux related patents documented in Burning the Ships.  Earthlink has its own NPE stories.

As a very expensive subscription to Intellectual Asset Management and some pretty easy  Google searches reveal, the privateer business model is on the move and other PAE business models are here to stay.  

The Shield Act and Troll Hunting.

The Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act proposes a loser pays framework for patent infringement lawsuits brought by patent assertion entities, aka patent trolls.  The PAE also needs to file a bond equal to the estimated cost of the legal fees when filing a lawsuit claiming infringement of one of their patents.

The new SHIELD ACT was reintroduced by Reps. Jason Chaffetz (R-UT) and Peter DeFazio (D-OR) in a rare show of bipartisan cooperation.  The bill received immediate support from the high tech blogosphere where the technical cognoscenti extolled the legislation's potentially huge impact on patent troll behavior.

(How much time is spent by Congressional staff sitting around coming up with acronyms?)

Congressman DeFazio, commenting on patent trolls stated, "They pad their pockets by buying patents on products they didn’t create and then suing the innovators who did the hard work and created the product."  Yeah, kill the evil patent troll.  Not so fast. There's a bit of intellectual property vertigo setting in here.

The trolls buy patents on products they didn't create and then sue the innovators.

The companies make products that cover inventions they didn't invent and are infringing and aren't paying royalties to the inventors who did the hard work and created the invention.

There doesn't seem to be any one wondering why these guys are infringing on some inventor's patent in the first place.  And the bill isn't addressing the real issue - why is it that the brightest guys and gals in the room can't find the patents they need to license when they create their products in the first place?

After all the cheering dies down and reality sets in the  Shield Act as currently crafted raises some nontrivial issues.

First its new protections kick in too late in the PAE enforcement campaign.  Most PAE campaigns are settled long before they get to court.  Business people targeted by a PAE campaign, the bulk mailing, indicia of extortion type, are faced with two choices: settle quickly at a low price, sign the non-disclosure, go home and take a shower and get back to business; or go to battle, spend a lot of money and management energy and hope you'll win someday.

For some business people the decision is pretty simple.  A legitimate infringement lawsuit fight can go on for three or four years while you wait for the USPTO to reexamine the patent, and wind through the rest of the legal process. Getting your money back isn't the same as not spending it in the first place. Business people have to ask them selves if they have the money and stomach for the fight? A lot do not.  Most don't have the guts of the folks from Newegg or the know-how to find the prior art to invalidate an overly broad or fuzzy patent.

Then there's the bond exclusion. The SHIELD Act excludes certain parties from the bond requirement when they file an infringement suit:

1) Original inventors, joint inventors, and the original assignee of the patent;
2) Entities that have made a substantial investment in exploitation of the patent through production or sale of a product covered by the patent; (this doesn't to protect operating entities that make products but doesn't state that seem the defendant has to own the patent they are "exploiting"); and
3) Technology transfer organizations whose primary purpose is to facilitate commercialization of technology developed by one or more institutions of higher education.

The original inventor/original assignee language is problematic.  The bill doesn't address what happens when one firm is acquired by another as part of the normal course of business. Would the patent portfolio owned by Chrysler become worthless when it transferred to Fiat as part of the purchase of the firm?  And what about all those A123 Systems battery patents that transferred to Wanxiang when they acquired the company in bankruptcy, are these patents no longer enforceable and free for anyone who now wants to make the same types of batteries to exploit? Will firms engaged in these types of transactions no longer be able to protect their intellectual property from infringement? The bill doesn't address asset sales when patents are sold separately as part of bankruptcy proceedings.  Does this preclude recovery of value from assets of a company in bankruptcy by rendering the patents unenforceable?

Is a patent less valid when it's not owned by the original inventor?  Does the transfer of the patent to a third party by the inventor or assignee, after all someone needs to actually transfer the patent before the PAE can sue anyone, mean the patent can't be enforced without having $1M to post a bond?

The technology transfer exemption may seem appropriate but universities file PAE-like enforcement lawsuits they just don't send out 10,000 letter first (at least not yet).  In December 2012, a nine member federal jury ordered Marvell Technology and its US operating subsidiary Marvell Semiconductor Inc. to pay $1.17 billion in damages to Carnegie Mellon University. Carnegie Mellon University sued Marvell (MRVL: NASDAQ) for infringement of two patents, 6,201,839 issued in 2001 and 6,438,180 granted in 2002.  Carnegie Mellon may be a technology transfer organization but they aren't making any products.

Acacia Research's stock took a 4% hit while analysts try to figure out the impact on its business model if the bill becomes law.  Most of the stock value prognosticators feel that by the time Acacia goes to court it usually has a very strong case and can easily afford the bond contemplated by the bill,  a buying opportunity for ACTG's stock.

Nice try.  It looks good for the Congressmen to stand up with their venture capital and entrepreneurial innovator constituents in a show of support against the evil troll but it doesn't do much for the vast majority of situations where the demand letter arrives and entrepreneurs need to decide if it's more cost effective to pay up and move on rather than to mount a fight and hope that you'll win and eventually get your legal fees back. The only thing that's going to fix the problem is better patents, better ways to get rid of the ridiculously overly broad fuzzy ones, and creation of information resources for new companies making new products to search for and find the patents they need to license when the license is cheap and the market is small.  It is better than waiting to build markets and create value for their shareholders and then wait for the letter to arrive and hope you get your money back.

The Patentista On Patent Privateers

Today's Wall Street Journal, Bloomberg and others reported on the latest volley in the battle between Cisco Systems Inc. and the latest PAE to come to the fore - Innovatio IP Ventures LLC.  In a nutshell, Cicso accused Innovatio of racketeering and extortion for sending threatening licensing demand letters to 8,000 coffee chains, hotels, and other retailers that use Cisco, Netgear, or Motorola Solutions WiFi equipment. The list of threatening letter recipients is a veritable Who's Who in the hospitality, coffee, and retail business - Hyatt Corp, Marriott Hotels, Wyndam Hotels, Ramada, Best Western, Panera, Caribou, and many more.  The Patentista called to point out that this is par for the course in the patent troll business and that this might actually be a privateering deal.

So the folks who bought equipment from Cisco so their customers can read email while drinking a Latte are being asked to cough up some money because they are infringing Innovatio's patents.  If the folks who bought the WiFi equipment from Cisco are infringing the patents then the next group of infringers are the users of the WiFi equipment including the denizens of Laptopisan and those surfing the net while in their PJs at home. (According to Matthew McAndrews the lead counsel for Innovatio, “Innovatio has made a strategic and business judgment at this stage that it doesn’t intend to pursue [lawsuits on the basis of] residential use of WiFi,”

Cisco claimed Innovatio's practices were extortion but the Innovatio crew came back and said it was their right to aggressively pursue infringers of their legally issued patents.  Cisco wanted to make the whole thing go away because of the bad behavior on the part of Innovatio.  The Judge in the case said, "not so fast."

Judge Holderman ruled that Innovatio had the right to petition any department of the government including the court system and that protection extends to licensing demands made before a lawsuit.  So Innovatio wasn't engaging in racketeering by demanding licenses from these companies as a lead up to filing lawsuits.  It was close but not quite there...yet.  That first amendment Constitution thing came first.

The Patentista recalled that Niro, Haller & Niro, the law firm representing Innovatio, and Cisco have a long history recalling the earlier Troll Tracker blog matter where Niro put out a bounty looking for the identity of the blogger responsible for Troll Tracker only to find out that he was the head of IP for Cisco.  That was back in the early days of the troll business when things seemed a lot simpler.

The Patentista noted how easy it is with a little customer relationship management software, a good solid database of addresses, and several reams of high quality paper from Staples to crank out the demand letters pretty quickly and get the ball rolling.  Then consider that the settlement price of between $2,300 and $5,000 per defendant is about the price of the starter retainer and a couple of phone calls to your attorney when you get the letter so why not just pay up and move on.  It's a business model with very low start up costs and big rewards.  It may really be targeted at getting Cisco to pay up but when you go after the little guys first it looks like extortion.  (Going after the end customers first to get the attention of a product provider is a tactic straight from the Patent Troll 101 play book.)

It's also about those agreements that people sign.  They usually say that if you get hit with a patent lawsuit on the products you buy that you need to let the manufacturer of the product know and take the lead in the matter and assist in the defense.  This is a seemingly innocuous paragraph when you sign (click these days) that nobody pays much attention to until the package with the demand letter on nice stationary arrives.  Assisting in the defense could be costly however righteous it might be.  Paying up and being indemnified against future action for a $2,300 might be a better deal.

Either way, if you figure Innovatio sent 8,000 demand letters at $5,000 a piece to settle, Innovatio can pull in about $40,000,000 at the high end (zeros are for effect.)  Even if you only get half, that's $20M.  And who cares if the firms paying the money are being abused or are disgruntled and unhappy.  You have the money and can move on to your next victim.  Who cares if more people hate the patent system.  It's a nice pay day.

The Patentista suspects that this might be a privateering deal.  Most of the patents were transferred from Broadcom to Innovatio.  Maybe they commissioned Innovatio as their privateer to wring the last bit of revenue from these assets.

What you ask is a patent privateer?  It's a new species of patent monetizer.  The term patent privateer is used to describe special purpose business entities set up by large practicing entities, usually surreptitiously, for the sole purpose of monetizing the patent assets.  There are of lots of reasons why the patent privateer business model is attractive.  Here are a few.

It's easier to have someone else litigate your patents then to do it yourself.

It keeps the funds allocated for patent monetization separate from traditional operating expenses.

It creates plausible deniability in a marketplace where patent litigation seems to violate the marketplace's sense of fair play or when moving against a competitor directly is unsavory.

It creates an uncorrelated asset - an asset not directly tied to the price of a firm's stock - sometimes when the risk associated with the likelihood of success is low or unknown an uncorrelated asset is good.  It becomes a correlated asset if thing go well and there are nice revenue flows back into the practicing entity (especially when such a flow of cash is beneficial for quarterly results reporting.)

It separates corporate assets of the practicing entity and the annoying cross-licensing discussion separate from the monetization piece by eliminating counter suits and all that nasty patent licensing stuff that goes on when one practicing entity has to deal with another.  It can also be helpful by annoying licensing agreements in the first place when you are no longer a big player in the marketplace where the patents apply.

It lets the monetizing entity hide in plain sight during the cease and desist early action phase of the program until they hit a serious adversary who knows to ask the court to determine the material ownership of the entity - basically who owns the LLC and where the funds to support the operation are coming from.  It gives cover until someone gets a patent attorney smart enough to figure out who is behind the PAE.

And it provides better visuals.  The privateer pirate model with its skull and crossbones has such better optics than the drooling patent troll.  Or as Mr McAndrews, the lead counsel for Innovatio pointed out, theirs is a systematic campaign.  "This is not a seat of the pants, fly-by-night shakedown."  (It's a more sophisticated shakedown.)

Maybe Broadcom Corporation wanted to squeeze the last bit of revenue out of the patents and decided to let Innovatio take a shot at it.  Either way the decision in favor of Innovatio means that the bulk mailing of demand letters and the patent troll business model is alive and well and will live to fight another day.

The Patentista Drops By

A Chat With The Patentista

Every now and then The Patentista drops by.  The Patentista stops by when the coffee is hot and there is something significant happening.

The Patentista is a knowledgeable sort who knows a great deal about the patent having been involved in all sorts of patent litigation and enforcement actions, hunting for technology to build patent portfolios for some of the major patent shops , doing obscure patent analysis and building classification tools, developing new licenses, finding expert witnesses, prosecuting patents, and helping sell off portfolios of otherwise distressed but one time brilliant companies.

The Patentista likes to opine on matters from the unique vantage point of someone who has made a career in the intellectual property world and who sees both the big picture and the arcane.

Our last conversation took place after the Federal Trade Commission—Department of Justice Patent Assertion Entity Workshop on December 5th, 2013.  It was a far reaching chat on a cold day in Washington — Is the patent system broke (we don't think so), what about non-practicing entities (Thomas Edison was an NPE and no one vilified him), what is with this new classification (Cooperative Patent Classification) System (aren't there enough of these that no one uses or understands - IPC, USPC, ECLA, Derwent), and how patents need to change as we move to a highly digital world (entrepreneurs and investors don't fully get the impact of convergence and patent licensing).  Over the next month or so we thought we'd bring you the highlights of our chat and some of the follow-up we did looking into the issues we discussed.  We hope it's a though provoking series on the patentsphere.

The Patentista's IP World View

The Patentista's world view is that the current state of affairs in the patentsphere guarantees full employment for patent attorneys as long as asymmetry exists between people who understand patents and the rest of the regular joe entrepreneurs, investors, venture capitalists and makers of products that may or may not to be covered by someone else's patents.  This is why non-practicing entities are here to stay and why things are likely to get worse before they get better.  The Patentista was on fire.

A Patent Cultural Aside

The conversation started with a cultural aside.

On the crowd at the Federal Trade Commission workshop on Patent Assertion Entities, a special breed of non-practicing entity and the lack of meaningful news coverage -- Patent attorneys don't Tweet.  They barely use email and are among the last profession in the universe to adopt business casual dress thus explaining the high suits and ties to jeans and blue shirts ratio at the FTC meeting.  As a group of people supposedly steeped in the latest science and technology, the assembled gaggle of patents attorneys are fellows (they were mostly fellows) who operate in a closed society and are perfectly happy to stay that way.  Information disclosure isn't helpful to them.  Dysfunction in the patentsphere is.  It means you need them.

Asymmetric Information

Then we moved on to the gist of the conversation - the asymmetric (one-sided) world of the Non-practicing Entity (NPE).

The Patentista isn't a fan of NPEs finding it difficult when one can't counter sue to keep things even.  The NPE business model is one of the try asymmetric ones.

According to the Patentista, plain old non-practicing entities are not the problem, well not the big problem, the patent hoarders are. (The Patentista said patent trolls but it's too early in the new year for pejoratives.)  The Patentista has had plenty of situations where Big Company #1 calls up Big Company #2 and says, "hey, we think you're infringing our  patented widget and you need a license."  These conversations generally ended with an agreement for an elaborate cross-licensing agreement on the technology and a more important "we'll see you in the marketplace" agreement.  The encounter ends with the business equivalent of let's step outside and fight it out.  The guy with the best product wins.  The Patentista believes in patents but also believes that while monetizing is good and getting the money is better that the best way to see if an invention is worth anything is to fight it out for market share and revenue.  (Well, most of the time.)

The Patentista's point is that what we all need to be worried about is patent hoarders.

On Patent Hoarders

Patent hoarders are extreme NPEs who own lots of patents.  A plain old NPE  has a few patents that are focused on a particular technology, the plain old NPE can make their case, and usually has at least some decent analysis to back up their infringement claim(s), as in, "please sign the enclosed non-disclosure and we'll be happy to send your our nicely formatted analysis of our patents in light of the publicly available information about your products."  Plain old NPEs usually have teamed up with the independent inventor(s) who don't have the money to enforce their patents (or at least they try to make it look that way).

The Patentista still isn't a fan of NPEs but feels it is  generally a more gentlemanly (not gentlewomanly as noted above) affair even though there are some scrappy moments.  The Patentista can figure out what the NPE has, can explain it to a deer-in-the-headlights, freaked out client, and can usually get to something that seems reasonable (maybe to the patentista if not always for the client) and get the client back to business (after reasonable fees of course.)

"But patent hoarders, now they are a big problem."

The Patentista's view is that patent hoarders are just like those people on the Hoarders cable TV show.  The TV hoarders start collecting stuff, what starts out as good stuff morphs into stuff that really isn't useful, piling it up all over the place until eventually you can't get into the house.  You simply can't tell what's good from what's junk.  An intervention is required to clean everything up and return things to some semblance of normal.

The patent intervention is the same kind of behavior when regular patent holding organizations stop paying fees on stuff they don't think they will ever us, usually after an emotional discussion on the topic right before the latest round of fees are due with their General Counsel and Chief Finance Officer as in, "what are we doing with all this stuff".

Patent hoarders assemble all kinds of patents in a particular domain - blocks of patents for wireless, medical devices, "the web", mobile, etc.  Whatever suits their fancy.  Some of the patents may be "standards essential" but a lot are "padding."   Eventually they have these huge patent portfolios full of maybe some good stuff but a lot of junk, marginal patents, patents with hundreds of prior art references and lots of inventors, stuff.  There may be something valuable in there but with all the piles, who can tell.  There tends to be a bad signal to noise ratio in NPE patent portfolios.  The difference between the TV hoarders and the guy with the dumpster and patent hoarders is patent hoarders have printers and offices where they crank out cease and desist letters and file lawsuits.

According to the Patentista, the patent hoarders don't curate, they go for volume and volume is the problem.  Patent hoarders whether they are plain old patent assertion entities or patent aggregators, they operate on volume.  Oh, and their patent attorneys can't do the Big Company #1, Big Company #2 dance because the patent hoarder isn't interested in such a relationship.

The other problem?  Who can analyze 100 patents (or more than 1,000) with an average of 20 claims against a portfolio of products without it taking a lot of time and a lot of money.  It's even better when the hoard of patents are in a domain known for fluid, sales-y (read flakey) vocabulary that is used to describe important elements of the technology.  Does anyone have a one sentence definition of "cloud-computing" "software as a service" "mobile" or web-based anything? - The Patentista points out that mobile computing has been in police cars for quite a while but that the new kids in the space never look there.

And then there's the issue of  patents with overly broad claims. (The Patentista admits to writing quite a few over the years.)  Maximalist on enforcement, minimalist on content.
Patent hoarders benefit from the digital business models and the emerging knowledge-based economy that lives and breathes on the internet.  It's a great formula: -

Lots of patents because filing electronically makes it easier for the patent factory,
Lots of claims,
Lots of emerging products, marketing-esque semi-technical lingo where even the market participants sometimes need a definition or two to advance the conversation, and
Lots of free cash flow from investors.

 But most important -  high margin products.  (58% percent on the iPhone vs. 5 or 6% on a desktop computer? Who can't afford another $0.50 per device?)

The Patentista points out that there aren't many patent hoarders or NPEs that own the patents and operate in the pharma, biotech, or chemistry space.  The domains have a standard vocabulary where everyone speaks the same language and know what a molecule is making buffalo-ing the little guy harder and defending claims of invalidity easier.

The Patentista then went into a long explanation on all the reasons you want this stuff covered by attorney/client privilege and don't want to do it in-house.  (See the note above about patent attorney full employment.)  We'll save the details of that part of the conversation for another post.

Then came the stifling innovation and patent litigation moment.  

When you take a license from a patent hoarder you don't really know what you bought or if you are fully covered as in do you now have a license to all the patents you will need so you can get back to selling your products.  The patent hoarder will sell you a license to their portfolio but can't provide the licensee with any kind of guarantee that another patent hoarder isn't going to come along with their hoard of un-curated stuff and do exactly the same thing.   Generally the patent hoarder can tell you what they own, a lot of stuff, but they can't explain all their holdings in light of the rest of the patents out there.  And you can't figure out their holdings either.  And now you've exposed yourself as a potential sucker who will take a license and go quietly into the night so bring on the lawsuit as a measure of how serious the patent hoarder is and to slow things down to give you some time to figure out what you are going to do or at least make you look like a tough guy.

Patent hoarders just like every other patentista know that explaining a patent to a jury of regular joes is risky business.  It helps the negotiations if the jury selection phase is coming up soon.

Now The Patentista isn't taking a pro or con view on NPEs.  They are part of a robust patentsphere but they operate in new and different ways.  As the FTC-DOJ meeting proves, nothing is simple here.

The Bottom Line

So the bottom line is that NPEs and patent hoarders in particular are the beneficiaries of a very big knowledge gap and the information asymmetry that comes with it. (A view we share.)  They will continue to have an advantage and operate using their current methods until some game changing force levels the playing field.  The Patentista doesn't see such a change  on the horizon or arriving anytime soon.  Neither do we.

The Non-Practicing Entity Conundrum University Edition

When is an NPE not a patent troll?

On December 26th, the verdict in a patent infringement lawsuit was announced.  A nine member federal jury ordered Marvell Technology and its US operating subsidiary Marvell Semiconductor Inc. to pay $1.17 billion in damages to Carnegie Mellon University.   The patent infringement lawsuit was brought by Carnegie Mellon University.  The verdict came after a month-long trial in the U.S. District Court for the Western District of Pennsylvania in Pittsburgh, the home of Carnegie Mellon.  The jury decided that the infringement was willful which means that the judge can award triple damages potentially raising the verdict to over $3.6 billion.

Carnegie Mellon University sued Marvell (MRVL: NASDAQ) for infringement of two patents, 6,201,839 issued in 2001 and 6,438,180 granted in 2002.  The patents cover ways to filter out noise and unwanted electrical signals when detecting data stored on a computer hard-disk drive.

Marvell is based in Hamilton, Bermuda. Its U.S. operating unit Marvell Semiconductor Inc is based in Santa Clara, California.  According to Marvell's inventor relations page, Marvell ships over one billion chips a year. Marvell’s expertise in microprocessor architecture and digital signal processing, drives multiple platforms including high volume storage solutions, mobile and wireless, networking, consumer and green products (LED lighting). The firm has 5,700 employees with design centers and research and development operations around the world.  The firm's research and development expenses were $1,014 million, $898 million, and $828 million in fiscal years 2012, 2011, and 2010 respectively.  Marvell Technology is a practicing entity. The firm owns patents and uses patents to protect the product it makes.  Its most recent patent, 8,341,503, "Methods and systems for storing data in memory using zoning" , was granted December 25, 2012.

Marvell Technologies may need to issue shares to cover the judgement according to several financial news reports.

Carnegie Mellon University (CMU) does not manufacture disk drives or semi-conductors (chips.)  It's primary product is education and research.  It doesn't produce products based the technology it invents.  This makes CMU a non-practicing entity,  or, using the pejorative, a patent troll.

The patents involved in the case were granted in 2001 and 2002 respectively, both were based on a provisional patent application filed in May of 1997. Published articles on the invention from the inventors began appearing in 1998. The patents cover technology that is almost 16 years old. Older than most of the patents enforced by non-practicing entities according to the now urban legend patent troll study written by Boston University Law School professors Mike Meurer and Jim Bessen.

K&L Gates, the law firm representing Carnegie Mellon University, claimed that Marvell copied the University’s technology for allowing hard disk drives to read information from high speed magnetic discs.  The expert witnesses in the case claimed that the CMU invention was a foundational piece of technology and that the university had been deprived of the revenue stream from its invention.

The inventors, Aleksandar Kavcic, and Jose M. F. Moura do not own a business that produces the inventions disclosed in the patents. Both are academics and researchers.  The inventors and the resulting patents in the suit benefited from a National Science Foundation under Grant No. ECD-8907068. The inventors and the university had the benefit of taxpayer funded research.

So here we have a patent troll case in which the non-practicing entity is a major research university.  The home town jury in Pittsburgh determined that willful infringement of the home town university's patents took place. The media reports on the case make no mention of the fact that CMU is a non-practicing entity despite the significant drop in the value of the publicly traded company's stock upon announcement of the verdict.  As of this writing there is no, "patent trolls are stifling innovation" rhetoric.  None of the usual suspects are circling the wagons screaming that there are over a gazillion patents that you need to look at when you make a smartphone even though technology made by Marvell Technology is essential to the smartphone, mobile, data storage ecosystem.  No one is preaching the end of an industry because of those pesky patents.

So where does this leave us?

It leaves us with a reality that sometimes someone who owns patents but doesn't make stuff but enforces their patents is doing what is good and right and sometimes someone who owns patents but doesn't make stuff and enforces their patents is an evil doer stifling innovation.  The line is very hazy.  It depends on your vantage point and what side you are on.

The discussion of the monetization of patents and who can legitimately enforce patents without public outrage continues.

About the Reporting on the Verdict:

As of December 27, 2012 only Bloomberg.com included the patent numbers in their article along with a brief description of the invention.

None of the media reports on the case discussed the age of the patents or the technology being enforced.  None of the reporters or bloggers asked why it took so long for CMU to seek to enforce its patents.

The announcement caused a significant drop in the price of Marvell's shares did not cause much in the way of explanation of the patents, or the invention covered by the patents.

Patent Alphabet Soup - FTC, DOJ, PAE, NPE

DOJ and FTC to discuss PAEs aka NPEs.

The Federal Trade Commission and the Department of Justice will host a one-day event on Monday, December 10, 2012 in the FTC Conference Center to explore the impact of patent assertion entity (PAE) activities on innovation and competition and the implications for antitrust enforcement and policy. FTC differentiates between PAEs and non-practicing entities NPEs such as universities, hospitals, and post-doctoral research organizations.  Panelists for the workshop will include academics, economists, industry representatives, and private attorneys.   The agenda can be viewed here.

According to the Wall Street Journal, DOJ and FTC is looking at, specialized patent-holding companies as part of a broad review of how holders of patents use them as strategic weapons against competitors. In particular, the agencies have expressed concern about companies that make aggressive legal claims based on patents that are part of industry technology standards. Antitrust enforcers also are interested in mergers or acquisitions that result in large transfers of patents.  Federal regulators are grappling with the changing face of the patent business. Nowadays the specialized patent company that tries to wrest royalties from a big technology company might not be an independent enterprise. Rather, it might be the creation of other big companies.

The workshop will provide interesting insight into the current mindset within the anti-trust and consumer protection communities on the issues surrounding the business practices and economic impact of patent assertion entities (non-practicing entities like universities are apparently off the hook here.)

Indicia of Extortion — filing nearly identical patent infringement complaints against a plethora of diverse defendants where the plaintiff follows each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation. The term was used by Judge Lourie in the CAFC decision in Eon-Net LP v. Flagstar Bancorp.